One of the most significant tools of federal bankruptcy law is the authority of a trustee or debtor-in-possession to conduct a "free and clear" sale of a bankruptcy estate's assets. Many may think of such sales in terms of being able to sell (or acquire) assets free and clear of the traditional "liens, claims and encumbrances" that may attach to an asset. The Bankruptcy Code provision providing for free and clear sales, however, is more expansive than that, providing that an asset may also be sold free and clear of "interests." Courts have disagreed on the exact breadth of this term—which the Bankruptcy Code does not define. Most courts, however, have construed the term broadly, holding that it encompasses more than just "in rem" interests in property. Two recent bankruptcy court decisions from courts located within the Second Circuit, In re Tougher Indus., No. 06-12960, 2013 WL 1276501 (Bankr. N.D.N.Y. March 27, 2013) (Tougher) and In re USA United Fleet, 496 B.R. 79 (Bankr. E.D.N.Y. 2013) (USA United)—each holding that a debtor's assets may be sold free and clear of the New York Department of Labor's statutory right to transfer a company's unemployment experience rating to a purchaser of the company's assets—illustrate the reach and vibrancy of the "free and clear" bankruptcy tool.
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